<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
Commission file number 1-14725
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BIOZHEM COSMECEUTICALS, INC.
(Name of Small Business Issuer in its charter)
Texas 76-0118305
- ----- ----------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
32240 Paseo Adelanto, Suite A
San Juan Capistrano, CA 92675
- ----------------------- -----
(Address of Principal executive offices) (Zip Code)
Issuer's telephone number, including area code (949) 448-2184
Securities registered pursuant to section 12(b) of act: None
Securities registered pursuant to section 12(g) of act: None
Common stock $.001 par value.
Check whether the issuer (1) filed all reports required to be filed by
Section 13 of 15 (d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
Yes _X__ No ____
As of April 30, 1999, there were 7,165,486 shares outstanding of the
issuer's common stock, $.001 par value.
1
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BIOZHEM COSMECEUTICALS, INC.
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
Index to Condensed Financial Statements
---------------------------------------
Page
----
Condensed Balance Sheets
March 31, 1999 and September 30, 1998 3
Condensed Statements of Operations
For the Three Months Ended March 31, 1999
and March 31, 1998 4
Condensed Statements of Operations
For the Six Months Ended March 31, 1999
and March 31, 1998 5
Condensed Statements of Cash Flows
For the Six Months Ended March 31, 1999
and March 31, 1998 6
Notes to Condensed Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-10
PART II - OTHER INFORMATION 10
2
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<TABLE>
BIOZHEM COSMECEUTICALS, INC.
CONDENSED BALANCE SHEETS
ASSETS
<CAPTION>
March 31 September 30
1999 1998
------------ ------------
<S> <C> <C>
Current Assets:
Cash $ 59,665 $ -
Trade accounts receivable, net 2,248 3,002
Inventory 80,148 90,322
Other current assets 11,077 5,238
------------ ------------
Total current assets 153,138 98,562
Property and equipment, net 54,321 62,140
Intangible assets, net 344,488 288,598
Other assets 74,034 72,001
------------ ------------
Total Assets 625,981 521,301
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued liabilities $ 172,762 $ 212,919
Notes payable 82,518 118,069
Current portion of long-term debt 66,909 46,935
------------ ------------
322,189 377,923
============ ============
Long-term debt 179,884 93,835
Stockholders' Equity:
Preferred stock, $1.00 par value:
Authorized shares - 10,000,000
issued and outstanding - none
Common stock, $.001 par value
Authorized 100,000,000 shares; issued and
outstanding 4,945,282 and 6,951,200
at September 1998 and March 1999,
respectively 6,951 4,945
Common stock subscribed, $.001 par value
980,414 at September 1998 - 980
Additional paid-in capital 4,553,838 4,252,412
Accumulated deficit (4,436,881) (4,208,794)
------------ ------------
Total stockholders' equity 123,908 49,543
------------ ------------
Total Liabilities and Stockholders' Equity $ 625,981 $ 521,301
============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements
3
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BIOZHEM COSMECEUITCALS, INC.
CONDENSED STATEMENTS OF OPERATIONS
Three Three
Months Months
Ended Ended
March 31 March 31
1999 1998
---------- ----------
Net Sales $ 289,720 $ 307,735
Cost of Sales 60,751 64,175
---------- ----------
Gross Margin 228,969 243,560
---------- ----------
Expenses
Selling and G&A 293,829 284,030
Advertising 27,497 9,610
Depreciation and amortization 19,771 17,888
---------- ----------
Total expenses 341,097 311,528
Operating income (loss) (112,128) (67,968)
Interest expense 8,435 7,395
Other income (expense) - 5
---------- ----------
Net income (loss) (120,563) (75,358)
========== ==========
Net income (loss) per common share $ (.02) $ (.02)
========== ==========
The accompanying notes are an integral part of the consolidated financial
statements.
4
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BIOZHEM COSMECEUTICALS, INC.
CONDENSED STATEMENTS OF OPERATIONS
Six Six
Months Months
Ended Ended
March March
1999 1998
---------- ----------
Net Sales $ 560,984 $ 615,982
Cost of Sales 112,210 117,898
---------- ----------
Gross margin 448,774 498,084
Expenses
Selling and G&A 584,479 518,227
Advertising 40,524 38,315
Depreciation and amortization 36,638 33,812
---------- ----------
Total expenses 661,641 590,354
Operating income (loss) (212,867) (92,270)
Interest expense 15,215 11,603
Other income - 14
---------- ----------
Gain (loss) from operations (228,082) (103,859)
Income tax expense 0 0
---------- ----------
Net income (loss) (228,082) (103,859)
========== ==========
Net income (loss) per common share $ (.04) $ (.02)
The accompanying notes are an integral part of the consolidated financial
statements.
5
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BIOZHEM COSMECEUTICALS, INC..
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Six
Months Months
Ended Ended
March 31 March 31
1999 1998
---------- ----------
<S> <C> <C>
Net cash provided by (used in) operating activities $(248,546) $(43,396)
Net cash provided by (used in) investing activities (64,708) (78,614)
Net cash provided by (used in) financing activities 372,919 122,010
---------- ----------
Net increase (decrease) in cash 59,665 0
Cash at beginning of period 0 0
---------- ----------
Cash at end of period $ 59,665 $ 0
========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
6
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BIOZHEM COSMECEUTICALS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Forward-looking statements in this report, including without limitation,
statements relating to the Company's plans, strategies, objectives,
expectations, intentions and adequacy of resources, are made pursuant to the
safe harbor provisions of the Private Securities Litigation Reform Act of 1995.
Investors are cautioned that such forward-looking statements involve risks and
uncertainties including without limitation the following: (i) the Company's
plans, strategies, objectives, expectations and intentions are subject to change
at any time at the discretion of the Company; (ii) the Company's plans and
results of operations will be affected by the Company's ability to manage its
growth and inventory; (iii) the Company's business is highly competitive and the
entrance of new competitors into or the expansion of the operations of existing
competitors in the Company's markets and other operations in the retail climate
could adversely affect the Company's plans and results of operations; and (iv)
other risks and uncertainties from time to time in the Company's filings with
the Securities and Exchange Commission.
INTERIM FINANCIAL STATEMENTS. The accompanying condensed financial statements
have been prepared in accordance with the instructions to quarterly reports on
Form 10-QSB. In the opinion of management, all adjustments (which include only
normal recurring adjustments) necessary to present fairly the financial
position, results of operations and changes in cash flows at March 31, 1999 and
for all periods presented have been made. Certain information and foot note data
necessary for fair presentation of financial position and results of operations
in conformity with generally accepted accounting principles have been condensed
or omitted. It is therefore suggested that these statements be read in
conjunction with the summary of significant accounting policies and notes to
financial statements included in the Company's annual Form 10-KSB/A. The results
of operations for the periods ended March 31, 1999 are not necessarily
indicative of operating results for the full year.
INVENTORY NOTE AGREEMENT. The company negotiated an inventory note arrangement
with Arizona Natural Resources (ANR), its primary supplier, to provide the
Company inventory financing in the form of a line credit of $44,000 on invoiced
amounts to the Company. The line of credit bears an interest rate of 10% per
annum. The amount outstanding on the line of credit was $0 as of March 31, 1999.
SETTLEMENT AGREEMENT On December 5, 1997, the Company entered into a Settlement
Agreement and Mutual Release of All Claims with the franchisee of the Atlanta,
Georgia store, closed in April 1997. In consideration, the Company issued the
franchisee a $59,855 non-interest bearing note and warrant to purchase 17,000
shares of the Company's common stock for $.40 per share. The note is due in 30
monthly installments of $1,995 from January 1998 through June 2000 and the
warrant is exercisable at anytime prior to its expiration on December 5, 2000.
SETTLEMENT AGREEMENT On January 15, 1999, the Company entered into a Mutual
Release and Settlement Agreement by and between Warren Hernand, a director, and
IAMCO Corporation, on the one hand, and the Company, on the other hand. In
consideration, the Company agreed to pay $36,000 to Hernand in the following
manner: an initial payment of $12,000 on or before February 1, 1999; a second
payment of $12,000 on or before May 1, 1999; and a third payment of $12,000 on
or before July 15, 1999.
7
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BIOZHEM COSMECEUTICALS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Company has experienced severe liquidity shortages beginning in August 1994.
Principal contributing factors to the deterioration of the Company's liquidity
and capital position have been; lower than anticipated retail sales and
profitability due to limited marketing and the need for a new infomercial. The
Company had current liabilities in excess of current assets of $169,051 as of
March 31, 1999, compared with current liabilities in excess of current assets of
$279,361 as of September 30, 1998, and $281,548 as of December 31, 1998.
The Company decreased inventory levels slightly from $90,300 to approximately
$80,150 during the quarter ended March 31, 1999.
Accounts payable and accrued liabilities have been decreased from approximately
$213,000 as of September 30, 1998 to $172,800 as of March 31, 1999, primarily
due to an infusion of investment capital.
On December 28, 1998, the Company signed a new note with Eldorado Bank, with an
interest rate at prime plus 3%, with terms as follows: interest only through
January 1999, 1 principal payment of $10,000 plus interest on February 1, 1999,
1 principal payment of $15,000 plus interest on March 1, 1999, 1 principal
payment of $15,000 plus interest on April 1, 1999 and a final principal and
interest payment of $9,585.10 on May 1, 1999. The Company must still rely
primarily on operating cash flow and cash management to sustain its operations.
During the six months ended March 31, 1999, the Company has completed additional
equity financing of $302,500 in private placement and is actively pursuing
additional financing sources. If management cannot achieve its 1999 operating
plan because of sales shortfalls or other unfavorable events, the Company may
find it necessary to further reduce expenses or undertake other actions as may
be appropriate.
The Company's continued existence is dependent upon its ability to achieve its
1999 operating plan, which contemplates significantly improved operating results
and cash flow and its ability to obtain additional financing. There can be no
assurances that the Company will be successful in these regards. See "Safe
Harbor Statement under the Private Securities Litigation Reform Act of 1995."
RESULTS OF OPERATIONS - QUARTER ENDED MARCH 31, 1999
----------------------------------------------------
COMPARED WITH QUARTER ENDED MARCH 31, 1998
------------------------------------------
The net loss for the operations for the quarter ended March 31, 1998 was
$120,563 ($.02 per share), compared with a net loss of $75,358 ($.02 per share)
for the quarter ended March 31, 1998.
Net sales for the quarter ended March 31, 1999 were $289,720 compared with net
sales of $307,735 for the quarter ended March 31, 1998. The decrease in net
sales was primarily due to the decreased sales volume of approximately $10,000
as a result of one former franchise location being acquired by the Company in
January 1999.
8
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Gross margin was 78% for the quarter ended March 31, 1999 and 79% for the
quarter ended March 31, 1998. Gross margin remained constant at 80% for the six
month period ended March 31, 1999 and 81% for the six month period ended March
31, 1998.
Selling, general and administrative expenses increased by about $9,800 for the
quarter ended March 31, 1999 compared with the quarter ended March 31, 1998 due
primarily to approximately $4,500 in additional expenses for building leases and
approximately $4,200 in additional mailing costs for catalogs and post cards.
The Company increased its advertising expenditures during the quarter ended
March 31, 1999 to about $27,500 from about $9,600 in the quarter ending March
31, 1998. The increased advertising expenditure are primarily due to the fall
catalog being delayed until January 1999 when it would normally would have
fallen into the holiday quarter ended December 31, 1998.
RESULTS OF OPERATIONS - SIX MONTHS ENDED MARCH 31, 1999
-------------------------------------------------------
COMPARED WITH SIX MONTHS ENDED MARCH 31, 1998
---------------------------------------------
The net loss for the six month period ended March 31, 1998 was $228,082 ($.04
per share) compared with a net loss of $103,859 ($.02 per share) for the six
month period ended March 31, 1998.
Net sales for the six month period ended March 31, 1999 were $560,984 compared
with net sales of $615,982 for the period ended March 31, 1998. The decrease in
net sales was primarily due to the decreased sales volume of approximately
$10,000 as a result of one former franchise location being acquired by the
Company in January 1999, and the need for a new "infomercial" which is in
production and should be ready for release in the late spring.
Gross margin remained constant at 80% for the six month period ended March 31,
1999 and 81% for the six month period ended March 31, 1998.
Selling, general and administrative expenses increased by approximately $66,000
for the six month period ended March 31, 1999 compared with the six months ended
March 31, 1998 due primarily to the following. Health insurance benefits
increased approximately $6,300 due to a rate increase and more employees
qualifying for coverage; building lease expense increased by approximately
$8,200; legal expense increased by approximately $10,000; mail delivery expense
increased by approximately $6,100 due to increased mailings of catalogs and
travel expenses increased by approximately $5,000 due to increased travel to the
retail stores. Bad debt expense increased by approximately $21,100 for the six
months ended March 31, 1999, compared to six months ended March 31, 1998 due to
an expense reversal in the six months ended March 31, 1998.
The Company increased its advertising expenditures during the six months ended
March 31, 1999 compared with the six months ended March 31, 1998 from about
$38,000 to about $40,500 The increased advertising expenditure are primarily due
to the fall catalog being delayed until January 1999 when it would normally
would have fallen into the holiday quarter ended December 31, 1998. Advertising
as a percentage of net sales increased to 7% for the six months ended March 31,
1998 compared to 6% for the six months ended March 31, 1998.
9
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YEAR 2000
---------
The Company is currently assessing computer hardware and software
difficulties that may be experienced in connection with the so-called
"Year 2000" problems. The Company currently relies upon computer
hardware and software systems from various third party vendors to
manage critical functions of the Company. Internally generated software
systems do not comprise a material element of the Company's information
technology. The Company is in the process of securing from third party
software and hardware vendors, including providers of telephone
services, certificates of compliance with Year 2000 issues for
currently installed systems that are material to the Company's
operations. At this time, the Company expects that its key information
technology vendors will be compliant with Year 2000 requirements. A
failure by a third party vendor to adequately address the Year 2000
issue could have a material adverse effect on the Company. In addition,
the magnitude of certain risks, for example those associated with
embedded chips, are unknown at this point, and could nevertheless have
a material adverse impact on the Company and other companies in its
industry.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
There are no significant changes to the information reported
in the Form 10-KSBA for the year ended September 30, 1998.
Item 2. Changes in Securities
---------------------
None.
Item 3. Defaults Upon Senior Securities
-------------------------------
None.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
None.
Item 5. Other Information
-----------------
None.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
a) Exhibits
--------
Exhibit 27 - Financial Data Schedule
b) Reports on Form 8-K
-------------------
None
10
<PAGE>
SIGNATURES
- ----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BIOZHEM COSMECEUTICALS, INC.
----------------------------
(registrant)
Date: March 12, 1999 By: /s/ John C. Riemann
--------------------------------
John C. Riemann
Chief Executive Officer
(Responsible Financial Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> MAR-31-1999
<CASH> 56,665
<SECURITIES> 0
<RECEIVABLES> 2,248
<ALLOWANCES> 0
<INVENTORY> 80,148
<CURRENT-ASSETS> 153,138
<PP&E> 239,976
<DEPRECIATION> 185,655
<TOTAL-ASSETS> 625,981
<CURRENT-LIABILITIES> 322,189
<BONDS> 0
0
0
<COMMON> 6,951
<OTHER-SE> 123,908
<TOTAL-LIABILITY-AND-EQUITY> 625,981
<SALES> 560,984
<TOTAL-REVENUES> 560,984
<CGS> 112,210
<TOTAL-COSTS> 696,689
<OTHER-EXPENSES> 77,162
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15,215
<INCOME-PRETAX> (228,082)
<INCOME-TAX> 0
<INCOME-CONTINUING> (228,082)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (228,082)
<EPS-PRIMARY> (.04)
<EPS-DILUTED> (.04)
</TABLE>
